Jim Simons (Trades, Portfolio)’ Renaissance Technologies recently disclosed its 13F portfolio updates for the fourth quarter of 2022, which ended on Dec. 31.
Founded by Simons in 1982, Renaissance Technologies has successfully employed complex mathematical models to analyze and execute trades, many of which are automated. The company’s computer-based models predict price changes in easily traded financial instruments, and these models have been so successful that they have made Renaissance one of the top-performing hedge funds in the U.S. While the funds have long been closed to outside investors, we can still get a glimpse of which equities the firm has been buying and selling via its 13F reports.
According to its latest 13F filing, the firm’s top sells of the fourth quarter were Microsoft Corp. (MSFT, Financial) and The Home Depot Inc. (HD, Financial), while its top buys were Apple Inc. (AAPL, Financial) and Amazon.com Inc. (AMZN, Financial).
Investors should be aware that 13F reports do not provide a complete picture of a guru’s holdings. They include only a snapshot of long equity positions in U.S.-listed stocks and American depository receipts as of the quarter’s end. They do not include short positions, non-ADR international holdings or other types of securities. However, even this limited filing can provide valuable information.
Microsoft
Renaissance exited its 3,824,284-share stake in Microsoft (MSFT, Financial), which previously took up 1.26% of the equity portfolio. During the quarter, shares traded for an average price of $239.99.
Microsoft is an American tech giant that is famous for its Windows operating systems, Microsoft Office suite and web browsers. It also has gaming operations through Xbox and has tapped cloud computing, internet of things and artificial intelligence for growth avenues.
The main bear case on Microsoft centers on it potentially being sensitive to worsening economic conditions. Its cloud business, which is the company’s main growth engine currently, has seen its growth rate slow down. Additionally, the planned $68.7 billion acquisition of Activision Blizzard (ATVI, Financial) is in question as it will come at a poor time for the gaming industry. According to the Peter Lynch chart, Microsoft is cheaper than it was in 2021, but has not quite fallen back to undervalued territory.
Home Depot
The firm also sold all 1,598,400 of its shares in Home Depot (HD, Financial), which used to take up 0.62% of the equity portfolio. Shares traded for an average price of $304.63 during the quarter.
Home Depot is the largest home improvement retailer in the U.S., supplying a wide variety of tools, construction materials, pre-constructed home fixtures and related services. Based in Atlanta, the company has over 2,200 stores throughout the U.S., Canada and Mexico and holds a duopoly with Lowe’s (LOW, Financial) over the U.S. home improvement market.
Home Depot flourished due to the pandemic as people were stuck at home more often and wanted to upgrade their spaces. Then, the housing market heated up, which drove homebuyers and investors alike to Home Depot. As the housing market cools down due to the struggling economy and rising interest rates, there are worries that Home Depot could follow suit, though for now its earnings and revenue have still been growing.
Apple
The firm added another 5,870,078 shares to its Apple Inc. (AAPL, Financial) holding for a total stake of 7,099,648 shares, impacting the equity portfolio by 1.04% and making the stock its third-largest holding. Shares changed hands for an average price of $142.91 during the quarter.
Apple is a consumer electronics giant headquartered in Cupertino, California that is famous for its stylish, high-performance Mac laptops and desktops as well as its iPhones and iPads. The company has also been expanding into services with online entertainment, Apple Pay, AppleCare, licensing and more.
The services segment is a major component of Apple’s growth strategy because it provides sources of recurring revenue and helps maintain customer share of mind, thus reinforcing Apple’s brand image and helping cross-sell products. In addition, Apple is increasingly investing in producing its own semiconductors rather than buying them from others, which could help differentiate its offerings and reduce costs in the long term.
Amazon.com
Renaissance bought 8,196,300 more shares of Amazon.com Inc. (AMZN, Financial) for a total stake of 11,347,000 shares, making it the second-largest holding. The trade added 0.94% to the equity portfolio at Amazon’s average share price of $98.78 for the quarter.
Amazon is a leader in U.S. e-commerce and cloud services with dominant market positions in both of its main areas of operation, which serves as a potent competitive advantage. The scale of the company’s highly efficient logistics network combined with its sticky Prime subscription model has brought the number of Prime users to 200 million in the U.S. alone.
However, the e-commerce business has been struggling with high inflation and the worsening economy, and Amazon is no exception. Even though its cloud business is still growing rapidly, it is not as fast as expected, which has turned investors bearish. The stock is now considered a possible value trap by the GF Value chart because its share price has fallen so far below the model’s estimate of fair value.
See also
Renaissance Technologies’ other notable trades for the quarter included additions to Taiwan Semiconductor Manufacturing Co. Ltd. (TSM, Financial) Tesla Inc. (TSLA, Financial) and new buys for Johnson & Johnson (JNJ, Financial) and PayPal Holdings Inc. (PYPL, Financial).
As of the quarter’s end, the equity portfolio consisted of 4,074 stocks valued at $73.09 billion. The turnover for the period was 24%. The top holding in the portfolio was Novo Nordisk A/S (NVO, Financial) with 2.33% of the equity portfolio, followed by Amazon with 1.30% and Apple with 1.26%.
In terms of sector weighting, the firm was most invested in the health care, technology and consumer cyclical sectors.
